Rio's Walsh cool on expansion of Rinehart venture

Peter Ker

MINING magnate Gina Rinehart's wish for Rio Tinto to approve swiftly further joint ventures with her mining company appears unlikely to be granted soon, judging by comments from Rio's new chief executive, Sam Walsh, on his first public outing since taking charge.

Mr Walsh indicated that an expansion of Rio's highly successful iron ore joint venture with Mrs Rinehart's Hancock Prospecting was not on his immediate agenda, despite Mrs Rinehart suggesting that three new mines in the Hope Downs precinct were ''convenient for early development'' and should be committed to in a ''timely manner''.

The two companies have jointly developed three mines at Hope Downs in the Pilbara, but Mr Walsh said more work to prove deposits would be needed before any new mines could be commissioned.

Hancock Prospecting boss Gina Rinehart. Photo: Bohdan Warchomij

''We have works under way in terms of development, the drilling work and other work before you can make any decisions … we are not at 'order of magnitude' or 'pre-feasibility study' yet with those projects,'' he said.

Rio is going through a cost-cutting phase and is looking to drive down capital spending in the years

ahead, and Mr Walsh said Mrs Rinehart also had plenty to occupy her at the moment.

''Gina is also working on her own project, the Roy Hill project, and clearly there needs to be a balance for her in terms of what we do physically bring forward because she will need to finance everything that goes on, so for us it's a balance, and with her it's a balance.''

In London, Mr Walsh showed no sign of acting on Mrs Rinehart's other suggestion: that he should move Rio's headquarters from London to Perth.

His comments follow Rio Tinto this week reporting its first loss after being savaged by $US14.4 billion in write-downs. On Thursday night it delivered a $US2.99 billion loss for 2012, although underlying earnings were above consensus analyst forecasts at $US9.3 billion. Rio's Australian-listed shares on Friday ended down 2.7 per cent at $70.15.

For now, Mr Walsh - who encouraged those at the briefing to ''call me Sam'' - appears intent on steadying the ship at Rio and ''turning around'' the under-performing divisions.

''The strategy is unchanged but … there will be changes in the way we implement the strategy and that relates to the focus of the organisation, the discipline, how people take accountability and the fact I want people to act like business owners,'' he said.

The coal, aluminium and uranium divisions would wear the brunt of the $5 billion of costs and divestments that will be stripped out of the business over the next two years, but he warned that no part of the business was immune.

Despite the threat of further divestments, Mr Walsh indicated he would persist with two struggling African projects: the Simandou iron ore project in Guinea and the Mozambique coal project that cost former chief executive Tom Albanese his job.

Mr Walsh said the cost-cutting drive would be helped by the fact the mining sector was already a cheaper place to do business than it was several years ago.

''We are quite fortunate that some of the heat has come out of mining … If you see the prices for our commodities go down the costs for input material also go down as there are less people investing in projects and those areas - purely through supply and demand - come down,'' he said.

There appears to be little prospect of Mr Walsh adding a new commodity to Rio's books soon, despite its energy sector being dominated by poorly performing uranium and coal businesses, and lacking exposure to the unconventional oil and gas boom that rivals such as BHP Billiton have invested in.

''There are no acquisitions that I'm working on. One can never say never. I've learnt that in business, but there's nothing on my radar screen. My focus will be on delivery of value to shareholders,'' he said.

But Mr Walsh went out of his way to highlight that tensions continue to flare between his company and the Mongolian government over the development of Rio's key growth project: the Oyu Tolgoi copper and goldmine.

The Mongolian government has repeatedly expressed a desire to take a bigger stake in the project, and it also reportedly is concerned about the rising cost of development at the mine.

Mr Walsh said he was concerned about ''recent political signals in Mongolia'' that threatened to undermine the long-standing investment agreement underpinning development of Oyu Tolgoi.